Saudi Arabia Budget has Good News For Exporters

By Javid Hassan

Saudi Arabia’s national budget, which was unveiled this week, contains several positive features that should be of interest to Indian businessmen and entrepreneurs. Even though it is a deficit budget, the government has ensured that its economic stimulus package will continue to boost infrastructural development, while it has also made substantial allocation for education and manpower training.

Another noteworthy feature is that while all other countries have frozen increase in the government employees’ salaries, Saudi Arabia has bucked the trend by sanctioning a five percent increase in their pay packets. Thus, there will be continued consumer spending for sustaining the demand for these goods. Even so, it will be a buyer’s, not seller’s, market, since competition will be really stiff. Exporters of construction material, healthcare products and consumer goods should aim at lower profit margins if they want to make a dent into the Saudi market.

Strengthening physical and social infrastructure has always remained a priority of the government’s spending policy. It is deemed to be a clear and expeditious way of passing on the benefits of the ballooning oil revenues to the people.

The Saudi 2009 budget is more aggressive than in the past, since it has hiked government spending despite a fall in revenues. It also seeks to reassure the private sector that the government is committed to national growth despite the drop in oil prices. In fact, the deficit, the first since 2004, projects expenditure at SR475 billion ($ 126.6 billion ) and revenues at SR410 billion ($109.3 billion). This is in marked contrast to the record budget surplus of over $157 billion posted this year.

The more than $ 126 billion economic stimulus budget represents a 16 percent increase compared to the 2008 budget, the largest since 2006. It marks a 7 percent drop in terms of actual spending this year. In this context, Jadwa, a Riyadh-based financial consulting firm, estimates that the current spending is budgeted to shoot by $ 1.3 billion.

The firm forecasts a budget surplus of over $ 23 billion next year, since oil revenues are projected to increase to $ 149 billion while non-oil revenues will stand at $ 24 billion. According to it, this year’s budget was based on an oil price of $45 per barrel, while it is expected to average around $95 per barrel in view of OPEC’s decision to slash oil production by 2.2 million bpd since January 1 this year. Indian national industry and the business community should not gloss over the anticipated surge in oil prices in their plans for next year.

In the meantime, there is good news on the real estate front, which is set for a market boom in the private and commercial real estate sectors. What is fuelling the demand is the acute housing shortage in the low and middle income segments. Once the mortgage law, which is still in the works, comes into force, it will give a further boost to the construction industry.

This will open up more avenues for overseas businessmen and contractors, provided they don’t keep their expectations high. Nevertheless, there will be business opportunities in a market where the buyer will call the shot. Another icing on the cake in this budget is the provision for a 5 percent inflation allowance to government employees.

The new budget also allocates a record $ 32.5 billion for education and training. As Saudi finance minister Dr. Ibrahim Al-Assaf has observed, Saudi Arabia ranks among the top 10 countries having the highest spending on education in terms of their GDP. In line with this priority, the government had sanctioned new projects worth over $191 billion in education, water and infrastructure during the past four years. This trend has been maintained in the current budget as well.

Saudi businessmen have also urged the government to step up spending on infrastructure projects in order to offset the impact of the global crisis. They also want the government to adopt measures designed to boost the non-oil revenues. Presently, oil contributes 90 percent of the Kingdom’s revenues. The private sector wants the share of the non-oil sector to make a meaningful contribution to the national economy.

The thrust of the Saudi budget leaves no room for doubt that infrastructure, education, human resources development and healthcare will remain priority areas despite global recession. The Confederation of Indian Industry (CII) should organize a multi-sectoral delegation along these lines next year in coordination with the Indian Embassy in Riyadh or the Consulate General in Jeddah.

The right time for showcasing Indian technology and knowhow is on the occasion of the many exhibitions that take place periodically. They should also arrange seminars on the sidelines of these events to send across the message that India can offer state-of-the-art technology at a much cheaper price than in the West. They should not forget that China will underline its ubiquitous presence at these road shows by offering its products at ridiculously cheap rates compared to ours.